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    The Tax Profession: Tax Avoidance and the Public Interest


    Bennett, Annmarie and Murphy, Breda (2017) The Tax Profession: Tax Avoidance and the Public Interest. Working Paper. Department of Economics Finance & Accounting Working Paper N286-17. (Unpublished)

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    Abstract

    Professions possess a service ideal orientation (Dillard 2008; Starr 1982; Toren 1975) and play an important role in the 'pursuit of public interest and the common good’ (Jennings et al. 1987, 3). This incorporates ‘serving the public’ or ‘protecting the public interest’ (Pierce 2007, 7). While there is no agreement on what the ‘public interest’ means or how to measure it (Baker 2005; Boseman 2007; Canning and O’Dwyer 2001; Dellaportas and Davenport 2008; Sikka et al.1989), salient suggestions include ‘the collective well-bring of the community of people and institutions the profession serves’ (Institute of Certified Public Accountants 2014) and ‘the net benefits derived for…all society’ (International Federation of Accountants (IFAC 2012, 1). However, in practice, professionals have contractual obligations to serve their clients. Several studies assert that earning potential in relation to technical expertise has established the ‘servicing of the client [as] the primary duty’ (Doyle et al. 2009, 188), and has placed profession’s ethical duties as a secondary consideration (Doyle 2015; Doyle et al. 2009; Shafer and Simmons 2008; Stuebs and Wilkinson 2010, 2014). Accordingly, practices ‘may foster a reduction in the level of ethical behaviour as advisers strive to obtain and retain clients’ (Doyle et al. 2009, 182). This illustrates the difficulty of being a professional with explicit covenant to 2 serve the public interest in situations where there are considerable economic incentives to prioritise economic private interests (Canning and O’ Dwyer 2001; Carrington et al. 2013; Parker 1994; Spence and Carter 2014; Suddaby et al. 2009). Taxation is a vital resource for governments to achieve their public service agenda (ActionAid 2011; HM Revenue and Customs (HMRC) 2015; Isbister 1968) and is perceived as a significant cost by corporations (Freedman et al. 2009; Shafer and Simmons 2008; Sikka 2010). Tax avoidance and its adverse impact on public interest have come into sharp focus in recent years (Christensen and Murphy 2004; Dowling 2014; Freedman et al. 2009; Hasseldine and Morris 2013; Payne and Raiborn 2015). It erodes tax bases globally, leading to serious threats to tax revenues, tax sovereignty and tax fairness (OECD 2013) and reduces overall revenue intake for governments which could be used to facilitate public services and thereby promote the public interest (Keightley and Sherlock 2012). Fiscal pressures world-wide have directed attention to billions of euro of tax avoided annually by multinationals such as Apple, Google, Amazon, Facebook and Starbucks, and media reports in the United Kingdom (UK) have focused predominantly on the immorality of their actions (Independent 2016b; The Telegraph 2012). This has been reinforced by regulatory and political commentary which is similarly critical of certain tax arrangements (OECD 2008, 2013; The Financial Times 2016; The Guardian 2017; UK Committee of Public Accounts (UK PAC) 2013). Historically, the focus of attention has been on users of these tax avoidance schemes; however recent reports have highlighted a number of notable criticisms of the role of tax professionals (Financial Reporting Council (FRC) 2013a, 2015a; OECD 2008; UK PAC 2013; US Senate Permanent Subcommittee of Investigations 2003). Stakeholder theory is one of several theories proposed by Frecknall-Hughes and Kirchler (2015) to examine tax practices and the tax profession. We adopt this theory by reviewing key UK stakeholder expectations in relation to public interest. Given the expansiveness of the term ‘public interest’, we have selected to analyse the public interest dimension of tax avoidance. The paper applies the stakeholder framework introduced by Mitchell et al (1997), focusing on identification and salience of stakeholders with reference to power, urgency and legitimacy. We examine the high profile UK case of MG Rover (MGR). The MGR case was selected as it was the first ruling whereby the FRC, the independent regulator for the accounting profession in the UK, criticised the profession for failing to provide clarity with regard to acting in the 3 public interest. The case highlights differing views with regard to the profession’s duty of care and public interest duty. It presses the profession to address this ambiguity. Taking some issues raised in the case and examining expectations of other key stakeholders, we review codes of conduct and guidance documents within the UK tax profession and Big Four professional firms to understand how stakeholders’ concerns regarding tax avoidance and the public interest are addressed by the profession. The paper is based on documentary research. Documents analysed include the FRC tribunal and appeal report on Deloitte and Touche (Deloitte) in respect of the MGR case, the Department for Business Innovation and Skills report on MGR, the UK tax profession and the Big Four firms’ codes of conduct, tax principles and guidance documents, UK PAC reports and media reports. For context, we also refer to newspaper articles, pertinent regulation and regulatory rulings, sourced from newspaper archives and pertinent webpages. Findings highlight heightened awareness of stakeholder perspectives within the UK tax profession and significant progress in responding to public interest responsibilities. The paper reports a shift in focus whereby the stakeholder concept is increasingly embedded within professional guidance. Mitchell et al.’s (1997) stakeholder salience model is used to identify influential stakeholders and analyse the pressures applied by them. The use of this model as a lens to interpret the tax profession’s response to public interest, in respect of the tax avoidance issue, is a key contribution. The paper is structured as follows. Section 2 details literature regarding the role of the tax profession, tax avoidance and its ethical dimension. Section 3 reviews the theoretical framing, namely stakeholder theory. Section 4 analyses the MGR case. Section 5 examines codes of conduct and key principles of professional tax bodies and large professional firms. Finally, Section 6 discusses the profession’s response and reports conclusions.
    Item Type: Monograph (Working Paper)
    Additional Information: Working Paper N286-17
    Keywords: Tax Profession; Tax Avoidance; Public Interest;
    Academic Unit: Faculty of Social Sciences > Economics, Finance and Accounting
    Item ID: 8945
    Depositing User: Ms Sandra Doherty
    Date Deposited: 02 Nov 2017 16:47
    Publisher: Department of Economics Finance & Accounting Working Paper N286-17
    URI: https://mural.maynoothuniversity.ie/id/eprint/8945
    Use Licence: This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here

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